Rae Woods (00:16): From Advisory Board, we are bringing you a Radio Advisory, your weekly download on how to untangle healthcare's most pressing challenges. I'm Rae Woods. Abby Burns (00:25): And I'm Abby Burns. Rae Woods (00:27): In our episode on what CEOs need to know in 2025, Abby talked about all of the pressures facing hospitals, and how systems are navigating, frankly pretty fragile legacy business models, and looking for new, more realistic paths forward. And one of the things that our guest Natalie mentioned in that conversation was that one of the big questions leaders are grappling with is what they need to be doing in terms of not the hospital but their ambulatory network. Abby Burns (00:55): Yeah, and Rae, they should be asking that question. I know in just a minute you're going to talk with some of our teammates at Advisory board who've been researching ambulatory strategy. But before we cut to that conversation, I actually want to pause on why this is so important. No matter whether our listeners are working for a system that has been building its ambulatory network for decades or is still at the point of, "We know we need to, but we're just not there yet." Or even, "That's not who we are." I would say in the year 2025, if you are a health system, if you work with health systems, ambulatory needs to be near the top of your strategic priorities, because that's what the market requires. Rae Woods (01:40): And we should be specific about why ambulatory is what the market requires. And for me, it all comes back to the purchasers, and I really mean all of the purchasers. You and I are purchasers as consumers of healthcare. We want care that is more convenient, more accessible, closer to home. Health plans are purchasers. They want care that is less expensive and therefore it is not in a hospital, same thing with employers. Abby Burns (02:06): And Rae, on the payer front, I think it's not just that they want that, but they are crafting their contracts to reflect it. Rae Woods (02:13): Yes, they are demanding it. Abby Burns (02:16): I was talking with the health system leader who in their market, the payers are no longer reimbursing at inpatient rates for certain procedures that can take place in the outpatient setting. So all of the providers in that market are now scrambling to build up their outpatient capabilities so that they're not hemorrhaging money or hemorrhaging margin on all of those procedures. Rae Woods (02:36): In fact, I might say that in 2025, ambulatory strategy is not something that health systems should want to do, it's something that they have to do. Which means we have to understand what success looks like in 2025 and what success will need to look like in the future. Beyond purchasers, Abby, where does your mind go? Abby Burns (02:58): I was going to run right at revenue, because the care delivery industry has gotten to where for a lot of organizations in a lot of markets, more than half of patient service revenue is coming from outpatient care. And when you talk with providers, the range of how sophisticated their ambulatory strategies are is pretty... Rae Woods (03:17): Variable. Abby Burns (03:18): Shocking. Rae Woods (03:19): Yeah, exactly. I spoke with one organization, they saw the writing on the wall more than a decade ago. They started building up their ambulatory capabilities. In the past 15 years, they've gone from having 70% of their revenue come from inpatient to now 70% of their revenue coming from outpatient. That is at the upper end of what I hear from systems, most systems are not structured to be able to take that in. And to be clear, this is not a trend that is going to reverse. Abby Burns (03:45): Especially when we see the volume of activity. think about how many more ASCs are in the market today compared to three years ago. There's data on that, we're talking about 67% growth in the number of ASCs operating in 2024 compared to 2022. Rae Woods (04:03): And this is where the deal activity actually is when we think about investments in healthcare. We've had this conversation, Abby, it's not in the hospital space, it's not in the inpatient space, it's all ambulatory, it's all outpatient. So the focus on ambulatory strategy is so essential in 2025 because it's something that purchasers are demanding. It's frankly where the money is and it's where your competition is going. So we're at the point where we should turn to our experts to understand what ambulatory strategy looks like in 2025 and what organizations need to do to succeed in 2035. So that's why I'm going to turn to our advisory board experts, Jordan Peterson and Nick Hula. Jordan, Nick, welcome to Radio Advisory. Nick Hula (04:52): Hey Rae, thanks for having us. Rae Woods (04:53): I want us to get in our virtual time machine for a moment, because if I'm honest, if we went back 10 years ago, so 2015, ambulatory growth would've been kind of novel. Back in 2015, we were seeing a ton of growth in employed medical groups and we were seeing this new promise of retail-based medicine. In fact, if I remember correctly, Advisory Board even had a study that I may or may not have worked on that was called The Coming Retail Revolution. We literally used the word revolution to describe what was happening in the retail space. Things have changed quite a bit in the last decade. When we talk about ambulatory care and strategy today, what do we even mean? Nick Hula (05:45): Yeah, I think it's first really important to just define what ambulatory is, because it's one of those things where if you ask 100 different people, you're going to get 100 different answers from them. So we have, for consistency's sake, have to pick one really. So for our listeners out there, when we say ambulatory today, we're talking everything that's not the hospital. Rae Woods (06:08): Everything that's not the hospital. Jordan Peterson (06:10): And Rae, you're right that when it comes to ambulatory strategy back in 2015, it was all about for the most part using ambulatory, so that's the doctors, the physician offices, the retail clinics, as entry points to funnel patients towards the more profitable inpatient care. And we actually still hear that as a goal a lot today. So we hear organizations say that feeding inpatient volumes is their main goal for ambulatory. Rae Woods (06:42): And I definitely remember that from back in 2015, it was all about feeding the inpatient space. And I think for a while that that worked, at least a little bit. Capture volume upstream, hold onto it for those profitable procedures and surgeries that really, really drove health system margin. I am guessing by your tone that you're going to tell me that's not the way we should be thinking about ambulatory strategy in 2025. Jordan Peterson (07:10): And even for the organizations who say that's their main goal, they're telling us how hard that is, and they're really struggling. That's because using ambulatory to feed inpatient volumes is a losing strategy. Why is this such a losing strategy? Because of all of the market forces in 2025. We have plans and employers channeling volumes to lower cost settings. We see the rise of value-based care initiatives that are putting a lot of pressure on providers to meet cost and quality targets, also pushing care to outpatient settings. Patients are demanding more convenient outpatient care options. And then of course we have competitors who are taking advantage of these outpatient opportunities, and a lot of times they're taking advantage faster than most legacy health systems can compete. So we have all these market forces that make it really difficult, but the biggest thing on top of all of that is that you can't predict how and where patients move. Rae Woods (08:14): Wait, this is really interesting, because back when I think about the retail revolution, I want to repeat the goal was to funnel inpatient volumes, but part of it was also to capture that patient loyalty and keep their share of wallet, business term that's used outside of healthcare all the time, maximize the dollar amount that someone spends for that services with one organization, that was the goal. I'm going to get them into my retail clinic for the sniffles and maybe to buy shampoo, and then I'm going to keep them for their obstetrics visit and their orthopedic surgery, et cetera, et cetera. You're saying that also is a losing strategy? Jordan Peterson (08:52): Yes, because the system isn't actually a funnel. We like to describe it more as a Plinko board. Rae Woods (09:00): What is a Plinko board? Nick Hula (09:02): It's like that game where you will drop a ball down a board at a bunch of different pins in the board, and five or six different buckets that it might go in. It bounces off a pin here and goes to a pin there. You think of all those pins as different market forces that are pushing that patient towards a different bucket, and the important thing is most health systems don't have any control over that. Rae Woods (09:22): That's right. It could be their health plan is pushing them in one direction or their family member is recommending a physician over here, those are all the pins in the board, I got you. Jordan Peterson (09:32): So you might know where a patient is entering the system, but you don't know how they're going to move through the system, and most importantly, you don't know where they're going to end up. Nick Hula (09:41): Yeah, exactly. And the other [inaudible 00:09:43] I'll add to that of why the goals for ambulatory are evolving is because, yes, that funnel system tends to be unreliable in today's market, but it also takes a very hospital-centric view of a health system's business. We're seeing more and more health systems move past this concept of like, Hey, the hospital is the anchor of care delivery. We're actually seeing more and more health systems have the majority of their revenue and the majority of their margin coming from ambulatory. We're starting to see this ambulatory business be the biggest part of a health system's business. So that goal of ambulatory needs to change to move beyond just supporting what is now just a piece of the health systems business as opposed to the entire thing. Rae Woods (10:31): Okay, so the goal has changed and we need to focus on the enterprise as a whole. I want to translate this into practical decisions, and maybe since we started off setting our sites backwards, let's now roll the tape forwards and think about 2035. Do health systems even have the ambulatory sites that they need to succeed 10 years into the future, let alone right now? Nick Hula (10:55): Yeah, it's a great question, Rae, but I do want to make a small tweak to the language you used to describe that. You said what ambulatory sites do they need? That's not how we suggest organizations are looking at things, we suggest they think about ambulatory capabilities, not investing in ambulatory sites. Rae Woods (11:17): That in and of itself is a big mindset shift. In fact, that might be the third mindset shift we have in the first couple of minutes here, not just focusing on inpatient, it's not a funnel, and it's also not just sites. Okay, what do you even mean by ambulatory capabilities? Nick Hula (11:35): Yeah, so there are four that we identified in our research. I will warn listeners, you're going to hear some jargon. I promise I will explain this. Rae Woods (11:44): We'll call you out on it. Nick Hula (11:45): Yeah, call me out on it, why not? Our four ambulatory capabilities are longitudinal preventative care, convenient ancillary care, accessible immediate care, and low-cost procedural care. I do understand people listening saying, "Congratulations, Nick. You just said preventative care, ancillary care and immediate care, procedural care. Great job. You just listed out all the different types of care." But I want to double down on those adjectives, because they're not just jargon words that we threw in there to sound consultancy or make them more official. We really are placing a lot of weight on those, because you may look at your organization and say, "Yeah, we offer preventative care. We offer primary care or multi-specialty clinics, or virtual visits or a work-based clinic." But really is the ultimate goal of that to keep patients out of the hospital, from cradle to grave? So your original question, Rae, was what investments should an organization make? Rae Woods (12:50): Yes. Nick Hula (12:52): The actual investments you make are going to depend on what your market is and what your ambitions are. But again, everyone should be making that decision through the lens of- Rae Woods (13:02): Capabilities instead of sites. And I actually like your primary care example as one of them. So if I, again, think back to 2015, maybe even 2010, there was a lot of focus on having the right primary care footprint, having enough sites that were close enough to patient homes and offices and suburban areas, et cetera, et cetera. You're saying having primary care is not the same thing as having robust longitudinal preventative care. And if you know that your business needs to trade on that because you have a high propensity of an aging population, you've got a lot of Medicare and Medicaid and duals in your market that you know that you need to double down more on that longitudinal, that's the capability you want to trade on. Am I tracking this correctly? Nick Hula (13:47): Absolutely. And with you investing in a primary care site, but also might end in you investing in, like I said, a work site clinic or some other type of preventative care investment. That's telehealth, the site's not as important, it's why you're making the investment. Rae Woods (14:05): I want to repeat those capabilities because I think they're important. Longitudinal preventative care, we just gave an example there, but you also said, I think it was convenient ancillary care, accessible immediate care, and low-cost procedural care. The low-cost procedure care, let me say that one makes sense to me. That's like your ambulatory surgery centers and things like that. Talk to me about the difference between convenient ancillary care and accessible immediate care, those two feel quite similar to me. Nick Hula (14:36): Yeah, so for convenient ancillary care, we're talking about things like imaging, labs, infusions, all the different services that are going to go into your patient's care, whatever disease that they might have. And a lot of that is going to come down, they're going to determine where they go based off of, "Hey, where does this fit into my schedule?" This isn't a procedure that maybe a lot of times they're scheduling really far out, this isn't an emergent need for them. A lot of times they're going to make a decision about who to go to based off of, "Hey, who fits into my schedule? Where can I drive to? Where are the close to where I'm located? Where are the close to where I drop my kids off?" (15:15): For accessible immediate care, again, an organization might say, "Great, we have immediate care, we have urgent care centers. We have freestanding EDs, we have put more walk-in slots to our primary care sites." But again, is it truly accessible at all hours for all patient demographics, for all coverage types, across your geographic market? If it's not, your patients are going to go to your competitors who are offering services that are much more accessible, Rae Woods (15:44): You're doing a really good job of painting an image in my mind of that peg board that you described, what was it called? Nick Hula (15:52): A Plinko board. Rae Woods (15:53): Plinko board. Because what I'm imagining is different places where a patient can get off track and leave the system. And so thinking about those capabilities, convenient, accessible, low-cost, longitudinal, is an interesting mindset shift. The challenge of thinking about capabilities instead of sites, instead of investments, is I imagine it's a lot harder to understand if you're doing it well. The goal of funneling volumes to a hospital, pretty straightforward, easy to track, easy to know if you're doing it well. How would a leader or our listeners know if they're getting what they need out of these kinds of capabilities? Jordan Peterson (16:37): That's a good question. There really is no one perfect answer that every listener is going to be able to walk away with. So instead we advise organizations to look at their enterprise-wide or system-wide performance, not just their hospital performance, when they're thinking about success. At a high level, that starts with executive commitment. So we need leadership to be on the same page about the driving purpose of ambulatory. So we describe that as if you were to ask every leader what the purpose of ambulatory is, what the goal of ambulatory is, they all will give you the same answer. And then the next step is that they need to socialize that answer across the organization so that everybody is on the same page. Rae Woods (17:24): And back to capabilities, I imagine where things can get wrong from the get-go is if some leaders think the purpose of ambulatory, and I'll admit this is something I hear in the market all the time, is to just go after those young, healthy patients. But you're saying that might not actually be the purpose of the organization, depending on your demographics, your market shifts, your competitors, what other kinds of ambulatory sites have set up shop across this week from you, et cetera. Jordan Peterson (17:52): So to give you an example of how organizations think about this, we talked to one organization on the west coast where their driving goal behind ambulatory was to have primary care within 15 minutes of every patient and specialty care within 30 minutes of every patient. And like Nick just talked about, that didn't mean more and more clinics, that didn't mean primary care clinics and specialty care clinics. Rae Woods (18:17): Doesn't mean a site within 15 minutes. Jordan Peterson (18:19): Right, it could be done through capabilities. So you might add telehealth visits to existing clinics to help patients get that specialty care if there's not a specialty care clinic. Rae Woods (18:31): I imagine you also might change the kinds of ways that you're operationalizing those clinics. So thinking about scheduling blocks, thinking about hours, thinking about some of the tried and true priorities when it comes to physician access. And I also like that idea, because that's making the most of what you have, not necessarily buying something new, which is succeeding on a capability, not buying an asset. You're buying me into this way of thinking. Nick Hula (18:56): Yeah, exactly. I think that I mentioned it in passing before when I was describing the capabilities, but I said there could be primary care with extra slots for walk-ins. When I was mentioning immediate care, just because you're investing in primary care doesn't mean you're building on that capability of preventative care. [inaudible 00:19:15] investing in primary care and improving operations, you're actually gaining immediate care capabilities. Rae Woods (19:21): Exactly. We said several mindset shifts so far in this episode, in fact, Nick, you even called me out on one of them. I'm mindful of the fact that organizations need to change their tune when it comes to their ambulatory strategy, which I imagine also becomes a lot harder to point to who's doing this well. What can we learn from some of the folks that you've worked with in the market? Jordan Peterson (19:45): Remember, the goal is to support the enterprise and not just the hospital business. So for example, one organization that was doing this well is a large regional nonprofit in the southeast, and they supported the enterprise by allocating money to regions instead of functions. So that meant that regional leaders needed to have a really good understanding of what their region's needs were, and then they could identify capabilities to help meet those needs that they hadn't met yet, and then use those decisions to prioritize funding. Rae Woods (20:20): So if I'm hearing you correctly then, one health system, one organization, might focus on say, low-cost procedural care in one region, but really double down on longitudinal preventative care in another. And that's okay because it's supporting the enterprise as a whole. Jordan Peterson (20:38): Yeah, and that's what really stood out to us about these organizations is that every leader was making decisions and making tradeoffs based on what would benefit the system, not just what would benefit their individual site. Rae Woods (21:59): I started off this conversation with us getting in our faux time machine, because I said that ambulatory strategy in 2015 looks very different than it does today, and I already alluded to the fact that ambulatory strategy in 2035 probably looks very different than it does today. The challenge with all of this is I'm not sure any of our listeners are starting their ambulatory from scratch, and I'm mindful of the fact that some folks are listening and saying, "Okay, Nick, Jordan, I've spent the last few years investing in things, building up sites." What do you say to those folks who might be in a moment of actually having to pivot their strategy rather than starting from scratch? Nick Hula (22:45): I think I'd start by saying, you didn't do anything wrong. I don't want to call people out and say, "You've been making the wrong strategies over the past 10 years." Because most organizations have been building their ambulatory network for what the market demanded of them over the past 10 years. But again, we're here in 2025. We have to build strategies. We have to build an ambulatory business that will solve our problems in 2030 and in 2035. So we'd be thinking about, Hey, I don't need to make the investments I need to make that would've solved my challenges in 2020. What are the challenges I'm going to have in 2025, 2030, 2035? What investments do I need to make to solve those? Rae Woods (23:28): Yeah, I also actually wonder if this gives them a little bit more opportunity, a little bit more creativity is the word I want to use, in how they deploy their strategy. And be less rigid on I need to own and operate or partner or build or buy these things, and instead thinking about the capabilities that they can either invest in. It could be sites still that you invest in or operationalized to make the most out of, and it can look different in different regions, to Jordan's point. Nick Hula (23:59): Right. What are the investments you're making? How are you changing the operations? Also, another one, Rae, is what divestments are you making? Rae Woods (24:06): I was just going to ask that, Nick, because there's a moment where when you pivot your strategy that you might have to ask yourself, "Should I stop doing something?" Nick Hula (24:15): Right. We've heard so many times of people saying, "Yeah, we invested in this primary care clinic quite frankly because a very influential doctor lives near there," and they were seeing a lot of patients that were then funneling into our in-patient visits. If that's not our goal anymore, do we really need to keep that site or can we reinvest that elsewhere? Or another example is anticipating where do you want to be competing with others in the market and where don't you. If, for example, you look at your market and, Hey, a competitor's got the position as top cancer provider in the market, they have that on lockdown, do you really need to keep funding that infusion center that you've been trying to keep going for years and years? Or do you want to move into another area where you can be more competitive? (25:02): I think it's really important for leaders to be thinking out, where do we need to shrink? One of our colleagues, Vidalsi Gobin, really harped on this last year of sometimes you need to shrink in order to grow, and I think this concept fits perfectly into that. Rae Woods (25:16): It does fit perfectly into it, and it's also, again, I think a moment of relief for our listeners to think about where they have the best ability to compete, and you don't need to compete with everyone pure play. If you know you're going to lose those oncology volumes, maybe shift your capability focus somewhere else. We focus a lot of this conversation on mindset shifts, let's end with decisions. When it comes to ambulatory strategy, how should our listeners be making decisions so that they ultimately have the right capabilities to meet the needs of their patients and their business? Jordan Peterson (25:56): We have a larger tactic brief coming out in a few months that outlines five tactics that progressive organizations are taking to achieve those aims with ambulatory, but for now, we can talk about our two key ones. So the first one is to get executive commitment. We touched on this briefly already, that it's really important for leaders to be on the same page about ambulatory's value to the overall system. Executive commitment, of course, is the first step of any strategic initiative, and ambulatory is no different. So one way that we've seen organizations tackle this with ambulatory specifically is with ambulatory's placement in the organization. So they have ambulatory reporting up through strategic executives, CEO, CSO, instead of up through operations. Rae Woods (26:47): I like that. Jordan Peterson (26:48): That placement helps get ambulatory on the same strategic footing as the inpatient side of the business, instead of ambulatory being treated like an afterthought, which is a trap that a lot of organizations are still falling into. Nick Hula (27:04): And the second one I'll call, I think that's a great first step for any organization, but what I've been really focusing on comes after that is getting everything you need ready to be able to invest in the right assets. So once you have that executive commitment that Jordan is describing, you can't just go and say, "Great, go forth and we will build all we need to build." It's getting that data. It's doing that forecasting. It's building those strategic roadmaps to determine what is my community going to need? Where are there gaps in that that I can fill or choose not to fill? (27:42): An organization that we've been talking to a handful of times out on the west coast did this really, really well. They were like a bedroom community, so one of the communities where people live and they sleep, but they go and they work in the city every day and that's where they get most of their healthcare needs. But then after COVID, they saw that really transform. Their community is now a place where people live and sleep, but work, spend all of their days, spend all of their lives. And they need to invest in new assets to serve that new community that they have in their market. Rae Woods (28:16): Well, Nick, Jordan, thank you for coming on Radio Advisory. We will be on the lookout for more coming from you and your team. Nick Hula (28:23): Actually, Rae, we will be bringing this information to our Advisory Board Summit in Washington, D.C. on April 29th and 30th. So those who do want to learn more about this, I think it'll be a great opportunity to come hear the content that we've been working on, but also talk with other leaders about, "Hey, what has worked well, what hasn't worked well?" Do a little of that collaborative learning with each other. Rae Woods (28:47): I love that, and I would love to see our listeners in our backyard where we work and play and receive care right here in Washington, D.C. Thanks, you all. Nick Hula (28:57): Thanks, Rae. Jordan Peterson (28:58): Thanks, Rae. Rae Woods (29:08): Nick and Jordan gave two first steps, and it strikes me that having unified executive commitment and having the data and capabilities ready to invest are steps that will help you move and pivot quickly to make sure that your organization is making the right decisions when it comes to the future of your ambulatory strategy. And remember, as always, we are here to help. (29:55): New episodes drop every Tuesday. If you like Radio Advisory, please share it with your networks. Subscribe wherever you get your podcasts and leave a rating and a review. Radio Advisory is a production of Advisory Board. This episode was produced by me, Rae Woods, as well as Abby Burns, Chloe Bakst, and Atticus Raasch. The episode was edited by Katy Anderson, with technical support provided by Dan Tayag, Chris Phelps, and Joe Shrum. Additional support was provided by Leanne Elston and Erin Collins. We'll see you next week.